A distorted neo-liberal path

The Budget simply ignores the bottom 40% of the population. It is neither capitalism at its best nor a market-friendly growth path
Last Updated 03 February 2022, 20:21 IST

This government bandies about the slogan Sabka Saath, Sabka Vikas, all the time. It assures inclusive growth, whereby all groups of people get to participate in the growth process and benefit equitably. That happens when inclusion is embedded in the growth process, and when, in an unequal, poor economy like India, the increase in the incomes of the bottom 40% of the population rise more than that of the rich top 10% of the population.

However, as per the recent Oxfam Inequality Report, in India, since 2015 more income has gone to the top 1% at the cost of the bottom 40%. The report shows that the richest 1% of India hold 42.5% of the national wealth while the bottom 50% of Bharat Mata’s children have a mere 2.8%. At present (2021-22), the 100 richest billionaires in the country collectively have $775 billion wealth, and have lifestyles that are in stark contrast to the squalid living conditions of the poorest 555 million (40%) of the population. And the number of the poor has risen from 59 million in 2020 to 134 million in 2021, even as the number of billionaires has also risen by 40%! Clearly, the bottom 40% population is marginalised and excluded from the country’s economic growth. This is certainly not Sabka Saath Sabka Vikas!

A massive expansion of productive employment is one of the basic requirements for inclusive growth. However, the unemployment rate was already high (highest in the last 45 years) before the pandemic, and it increased further in the last two years. Even after some recovery, the unemployment rate is, as per the latest CMIE data, 7.9% (December 2021) -- 7.3% in rural areas; 9.3% in urban areas. The Budget has offered no solution to this problem. The jump in capital expenditure under the PM Gati Shakti programme will, according to the Finance Minister, create 60 lakh jobs in the coming five years. This amounts to 12 lakh jobs per year, which falls far short of even taking care of the backlog of unemployment, let alone creating jobs for new entrants into the workforce.

Infrastructure development is good, but it takes time to create sustainable jobs. Also, the state governments that are expected to participate in the Gati Shakti programme are low on resources and particularly in capabilities. One is not sure how successful they will be in implementing this programme.

As regards the rural areas, there is the NREGS, which has proved to be a kind of a lifeline to the rural people. Now, the NREGS funds have been cut by 25% to help the “vikas” of the rural poor! With Rs 20,000 crore wage still due from the government to NREGS workers, rural employment is bound to suffer in the coming years.

In the absence of any employment guarantee programme, people in the urban areas, where the unemployment rate is as high as 9.3%, are also likely to suffer. The urban unemployed will have no respite in the coming years.

In addition, the Budget has cut food subsidies by a huge 28%, fertiliser subsidies by 11%, and fuel subsidies by 11%. The budget for rural development is reduced by 0.3% and the agricultural budget is up by only 2.5%. Considering inflation, this may not even be an increase, but a reduction in real terms. MSMEs needed a big boost from the Budget, but not much is offered to this sector either.

The total consumption expenditure in the economy declined by 5% in the last year. In the absence of any cash transfers and inadequate employment situation, consumption is not likely to increase in the economy, particularly with high levels of inflation, for which the government has no clear solution. The demand deficiency may persist in the coming years, restricting private investments on the one hand and intensifying the poor conditions of the bottom 30-40% of the population.

The allocation on health has increased by only 1%, which, in fact, will prove to be a reduction in real terms, thanks to inflation. The budget for education has increased by 11%, again far less in real terms due to inflation. What is surprising is that the government intends to set up 200 TV channels for school education — this, after the loss of education for two years, and when schools are now gradually turning to offline education! Isn’t it a bit late for that now?

The government could have easily raised expenditure on health and education, on employment generation, on investing in agriculture and for promoting MSMEs, as well cash transfers to the poor — all to give a big boost to equitable development. This could have been achieved by taxing the rich. One clear message of the abnormally high and rising inequality in the country is to increase taxation on the wealth and income of the rich to raise resources. The Budget, however, shows no change in taxation. The wealth tax rate remains zero, income tax rates remain the same as last year. The increase in tax revenue is due to the buoyancy of the economy. The tax-GDP ratio in India is low. It was 10.7% in 2017-18, and it declined to 9.9% in 2020-21. This rate is perhaps the lowest in the world at this GDP level. There is a big scope to raise the ratio.

In effect then, the commitment of the government to the bottom 30-40% of the population is limited. Its main focus seems to be to make the rich richer by offering all kinds of due and undue wealth-enhancing favours to them. It still considers high GDP growth as the sole goal, irrespective of the composition of that growth. This is not capitalism at its best, nor is it a market-friendly development path. This is a distorted neo-liberal growth path that originates from a distorted political economy.

(The writer is Director and Professor of Economics, Centre For Development Alternatives, Ahmedabad)

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(Published 03 February 2022, 17:41 IST)

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